Research and analysis

Corporate Insolvency and Governance Act 2020 - Final Evaluation Report November 2022

Published 19 December 2022

Applies to England, Scotland and Wales

Professor Peter Walton and Dr Lézelle Jacobs, University of Wolverhampton

Executive summary

Key New Findings

• Consistently with the Interim Report from June 2022, the Restructuring Plan continues to be seen as satisfying its policy objectives
• Latest evidence has revealed greater ambiguity regarding the Moratorium than was suggested by the findings of the Interim Report although the measure has been used successfully
• The following points have been raised as areas of concern in relation to the Moratorium:
  • the lack of a payment holiday in relation to financial creditors is seen as a weakness;
  • Insolvency practitioners are worried about the reputational risk of acting as a Monitor in cases where a company rescue is not achieved;
  • Certain aspects of the measure are seen as complex and unhelpful. For example, the alteration of debt priorities in any subsequent insolvency procedure is seen as a disincentive to use the measure, and uncertainty as to the meaning of which debts fall within the definition of ‘financial contracts’
• The suspension of Termination (ipso facto) clauses in supply contracts in s 233B of the Insolvency Act 1986 is seen as a valuable corporate rescue tool preventing insolvent companies from being held hostage by suppliers by withdrawing supply
• There remains some ambiguity around whether s 233B effectively prevents suppliers asking for additional ‘ransom’ payments and around the application of its ‘hardship provision’

The Corporate Insolvency and Governance Act 2020 (CIGA) came into force on 26 June 2020. The Government committed to a review of the operation of CIGA’s three permanent measures within three years of the CIGA commencement. As part of that review, in September 2021, the University of Wolverhampton (the research team comprising Professor Peter Walton and Dr Lézelle Jacobs) was commissioned to conduct independent research. The research was carried out using a mixed methods approach in two stages. The Interim Report[1] published on 21st June 2022 considered the results of Stage One which reviewed the data arising from a series of semi-structured interviews of various stakeholders. Stage Two continued with some further interviews but also involved an online survey of the insolvency practitioner profession.

The Interim Report concluded that the permanent CIGA measures were seen as having been broadly welcomed by stakeholders and as mostly satisfying their policy objectives. Stage Two data confirms the findings of the Interim Report in relation to Restructuring Plans (RPs). Data from Stage Two highlights that there are some concerns in relation to the extent to which the policy objectives of the Moratorium have been met. Consistently with the Interim Report, it remains too early to assess fully whether the policy objectives for s 233B (suspension of Termination (ipso facto) clauses in supply contracts) have been satisfied, although the early signs are positive.

Following Stage Two, it remains the case that the RP is seen by stakeholders as a success, building as it does upon existing case law governing Schemes of Arrangements (Schemes). The RP’s cross-class cram down power has been used successfully in cases where previously a Scheme on its own would not have been effective. It is seen as a success as it builds on 150 years of Scheme case law and familiarity with that case law breeds confidence in users. The RP is not seen as a completely new process but is based upon a tried and tested process, with some additional provisions.

Furthermore, following Stage Two, the high quality of UK judges adjudicating on RPs continues to be seen as a real strength. Although some see RPs as too costly and time-consuming for use in the SME market, SMEs have used the measure successfully.[2] A Case Study of the Houst Ltd RP where a SME successfully used an RP may be found in Annex E. In low complexity cases, such as Houst itself, the courts and stakeholders are showing an encouraging pragmatism about the required documentation. Stage Two data continue to show support for two ways in which the RP procedure might be made more accessible to the SME market. First, in less complex cases it might be feasible, where the company opts to do so, to allow the RP to be sanctioned at a single hearing or for the convening stage to be dealt with on paper, out-of-court. This may be an appropriate procedure where there is unlikely to be any challenge to the matters usually considered at the first convening hearing, such as the correct constitution of creditor classes. Secondly, again in simpler cases, it may be appropriate for the hearing to be held before an Insolvency and Companies Court judge rather than a High Court judge.

The costs of challenging an RP are seen as excessive, which hinders the policy objective of protecting dissenting creditors, although there is evidence that judges are very much alive to ensuring that the court is satisfied that the interests of dissenting creditors are protected even where the dissenting creditor has not engaged with the court process.[3]

There may be benefit in guidance being provided by either professional or trade bodies, representing what is already best practice. The guidance might explain the need to ensure sufficient information is shared with creditors in a timely manner and which might remind IPs who act as Plan Administrators that, although they are not acting as Insolvency Act office-holders,[4] they are licensed IPs (as they invariably are) and so must ensure compliance with their professional Code of Conduct.

Although the Interim Report considered whether primary legislation governing RPs might be made more attractive when compared to overseas jurisdictions there appears from the results of Stage Two that there is little appetite from IPs or insolvency lawyers for such an amendment.

The Interim Report suggested that the Moratorium has been used successfully and has broadly satisfied its policy objectives. The results of Stage Two suggest that there is some ambiguity around how far its policy objectives have been met. This impacts upon both SME and larger companies. Eligibility criteria often limit the use of the Moratorium to SME companies even though larger companies might find it a useful measure. In relation to SME companies, the Moratorium might be more frequently used in cases where a financial restructure is needed, if the Moratorium’s payment holiday was extended to financial creditors. Regardless of company size, there are significant concerns that the Moratorium alters pre-existing priorities in any subsequent insolvency. The alteration of creditor priorities may have unintended consequences and creates uncertainty for some creditors. There are also concerns within the IP profession that there are reputational risks to IPs who act as Monitor of a Moratorium.

The restrictions on Termination (ipso facto) clauses are generally seen as a positive addition to the powers available to IPs and companies who have entered a formal insolvency procedure. It is possible that a new Statement of Insolvency Practice might encourage IPs or companies who use the powers under s 233B to ensure that they point out to suppliers their rights to refuse continued supply if to do so would cause them undue hardship. It might assist with dissemination of information about the utility of s 233B if its common linking to the Latin phrase ‘ipso facto’ was avoided. It might encourage more engagement from the profession if s 233B was referred to as restricting Termination clauses in supply contracts. The measure is seen as broadly satisfying its policy objectives, but it remains too early to assess fully how the measure will operate.

Each of the CIGA measures is seen to be assisting the rescue of companies as going concerns which in turn is seen as contributing to job retention in those companies. Of the three measures, the RP was viewed by IPs as the most effective in contributing to the avoidance of job losses in financially distressed companies. The Houst Ltd Case Study shows an example where the RP would not have been approved had it been a Scheme or a CVA. In this case, up to 300 jobs were protected by use of the measure. As the company continued as a going concern, employee entitlements were unaffected. However, due to the need for secrecy in the planning of the rescue of the company, the employees were not engaged in RP process.

Glossary

Administration – this process provides breathing space to allow a rescue package or more advantageous realisation of assets to be put in place. An administrator is appointed to manage a company’s affairs, business and property for the benefit of the creditors. The person appointed must be an insolvency practitioner and had the status of an officer of the court (whether they are appointed by the court, or not). There is a hierarchy of objectives of administration: the primary objective is to rescue a company as a going concern; if the primary aim is not reasonably practicable, the administrator may instead act to achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration); and in certain circumstances, the third objective, to realise the value of property in order to make a distribution to one or more secured or preferential creditors may be pursued.

CIGA – Corporate Insolvency and Governance Act 2020

Company Moratorium - the process found in Part A1 of the Insolvency Act 1986 which allows a company’s directors to file documents at court which creates an initial 20 business day stay on creditor actions against the company.

Company Voluntary Arrangement (CVA) - the CVA is a statutory procedure available to a company in financial difficulties (under Part 1 of the Insolvency Act 1986). A CVA takes the form of a composition of debts or a scheme of arrangement agreed between a company and its creditors out-of-court, by the unsecured creditors voting in favour by a majority of at least 75% in value. The unsecured creditors, including those who voted against it, are bound by the arrangement. Secured creditors cannot be prevented by the arrangement from enforcing their security unless they agree to be bound by the arrangement. Preferential creditors cannot be treated under the arrangement in a way which does not recognise their right to be paid rateably ahead of non-preferential creditors unless they consent to this.

Relevant alternative test – under this test the court must be satisfied that, if an RP is sanctioned, none of the creditors in a dissenting class is any worse off than they would be in the event of the ‘relevant alternative’ (usually administration or liquidation).

Convening hearing – an RP or Scheme under the Companies Act 2006 commences with an application to court requesting that the court orders the convening of meetings of different classes of creditors (and/or members).

Cross-class cram down - the court may sanction or approve an RP even where one or more classes of creditor or member have not approved the RP. In such circumstances, as long as at least one class of creditor or member has approved the RP, the court may impose the RP on the dissenting class(es). This cross-class cram down will only be sanctioned by the court if none of the members of the dissenting class is worse off than it would be in the event of the ‘relevant alternative’ which will usually be an administration or liquidation.

Executory contracts - a contract under which unperformed obligations remain on both sides, or where both parties have continuing obligations to perform.

Insolvency practitioner (IP) - IPs are licensed by recognised professional bodies. Only licensed IPs can take certain appointments such as liquidator, administrator, CVA supervisor or Moratorium Monitor.

‘In the Money’ – a term used to describe creditors in an RP who are likely to receive a distribution in a relevant alternative proceeding. Contrariwise, creditors who are ‘out of the money’ is a term used to describe creditors who have no genuine economic interest in the RP and are likely not to receive a distribution in a relevant alternative proceeding.

Ipso facto clauses - these are usually contractual provisions which allow one party to terminate a contract if the other contracting party enters a formal insolvency (or other events listed in the contract occur). Such clauses may be used to encourage ‘ransom payments’ from insolvent companies to pay debts owing prior to the formal insolvency as a condition of further supplies.

Joint Insolvency Committee (JIC) - develops, improves and maintains insolvency standards from a regulatory, ethical and best practice perspective.

Mid-market company – this phrase is usually used to describe the segment of the market comprising companies which fall in between what are defined as small and medium entities (see SME description below) and large entities.

Monitor - an IP who acts in relation to a Company Moratorium and Monitors the company’s ability to continue to pay its debts falling due during the Moratorium period.

Plan Administrator – this is the label commonly used to describe a role usually undertaken by an IP appointed under the terms of an RP to oversee the implementation of an RP as sanctioned by the Court. This is not an office holder appointment under the Insolvency Act 1986. There may not be a Plan Administrator appointment in every RP. The role could be undertaken by a person not licensed as an IP.

R3 - the Association of Business Recovery Professionals.

Restructuring Plan (RP) - the RP (under part 26A of the Companies Act 2006) is one of the statutory procedures available to a company that has encountered or is likely to encounter financial difficulties. An RP requires two court hearings: 1) to convene meetings of creditors (and members) and 2) a sanction hearing to approve the decisions of the class meetings. Classes of creditors vote by a 75% majority in value in each class to approve the RP. At the sanction hearing the court may still approve the RP even if one or more class has voted against the RP, by exercising its power to cram down the dissenting class(es).

Sanction hearing - an RP or a Scheme first requires a convening hearing where the court orders class meetings to take place. Once those meetings have voted the court is asked to sanction or approve the decisions made.

Scheme of Arrangement (Scheme) - the Scheme (under part 26 of the Companies Act 2006) is one of the statutory procedures available to a company. It is not dependent upon the company being in financial difficulty but will frequently be used in that context. A Scheme requires two court hearings: 1) to convene meetings of creditors (and members) and 2) a sanction hearing to approve the decisions of the class meetings. Classes of creditors vote by a 75% majority in value and a simple majority in number to approve the Scheme. The court has no power to cram down a class who has not voted in favour of the Scheme.

SME - small and medium-sized enterprises. A company is defined as small under the Companies Act 2006 if it satisfies two or more of the following requirements: it has a turnover of not more than £10.2m; it has a balance sheet total of not more than £5.1m; and it has no more than 50 employees. A company is defined as medium-sized under the Companies Act 2006 if it is not a small company and satisfies two or more of the following requirements: it has a turnover of not more than £36m; it has a balance sheet total of not more than £18m; and it has no more than 250 employees.

1. Introduction

The Corporate Insolvency and Governance Act 2020 (CIGA) introduced three permanent measures aimed to relieve the burden on businesses both during and after the Covid-19 pandemic:

• Restructuring Plan under Part 26A of the Companies Act 2006

• Company Moratorium under Part A1 of the Insolvency Act 1986

• Suspension of Termination (ipso facto) clauses in supply contracts under s 233B of the Insolvency Act 1986.

The Government made a commitment to review the three permanent measures no later than three years after they came into force (on 26 June 2020). A further commitment was made during the passage of the CIGA Bill to conduct a review on the impact of the measures on employees.

As part of this Post-Implementation Review (PIR), the Government commissioned the University of Wolverhampton in September 2021 (following fair and open competition), to provide an evidence base by way of a process evaluation of how the permanent measures have been used and received by various stakeholders. This process evaluation has referred to guidance outlined in the Government guide to evaluation – the Magenta Book.[5]

The process evaluation is limited in scope to the three permanent provisions (the CIGA measures) and does not therefore consider the various temporary measures introduced to assist businesses to survive the Covid-19 pandemic.

The aim of the process evaluation is to address the research questions in order to inform the PIR in line with the Better Regulation principles.[6] The PIR provides the Insolvency Service with an opportunity to gather primary research on how the measures are working and to establish whether any refinements or changes to the policy need to be made. The process evaluation seeks to track the progress in the delivery of the measures. This has been done by using a mixed methods approach. The process evaluation consisted of two stages. Stage One resulted in an Interim Report[7] and Stage Two in this Final Evaluation Report by the University of Wolverhampton (Final Evaluation Report).

In June 2022 the Interim Report was published. This reported on the data from Stage One which involved qualitative research via in-depth interviews with Insolvency Practitioners (IPs), legal professionals and trade associations.

Completion of Stage Two of the project, which involved further interviews and an online survey of IPs, has led to this Final Evaluation Report which builds upon and refers to the Interim Report. The two reports are to be read in conjunction with one another. Much of the background and methodology adopted in the Interim Report is repeated for convenience in this Final Evaluation Report. The structure and content of the Final Evaluation Report mirrors that of the Interim Report. It begins with a short explanation of the Background to the CIGA measures. It then explains the Methodology adopted for the evaluation. The Findings are then considered in the following order: General Comments; Restructuring Plans, Company Moratorium and Suspension of Termination (ipso facto) clauses. Sub-headings are incorporated in the Findings for each of the CIGA measures addressing the Main Research Questions to inform the PIR. Key Findings for each measure combine those from both Stage One and Stage Two.

An Overseas Perspective is included as a common theme of some interviews was how the UK regime now compares to other jurisdictions. The online survey conducted during Stage Two also asked about comparative jurisdictions.

The Final Evaluation Report adds to the findings of the Interim Report. It collates the data gathered from both Stage One and Stage Two along with the interpretation of the research team, to provide conclusions against the main research questions. In drawing conclusions from the data, the research team is not making recommendations.

The Insolvency Service will consider the evidence provided in both reports when writing the PIR. The PIR is due in June 2023 and will consider what, if any, refinements or changes need to be made, based on the evidence.

2. Background

CIGA was introduced by the Government with the overarching objective to provide companies with the flexibility to be able to continue trading during and after COVID-19. It did this with a mixture of temporary easements to insolvency law, coupled with a package of permanent measures to maximise the survival prospects of viable companies.

Throughout the COVID-19 pandemic overall numbers of company insolvencies remained low when compared with pre-pandemic levels, which was likely to have been driven in part by Government fiscal and other measures that were put in place to support businesses. These measures included temporary restrictions on the use of statutory demands and certain winding-up petitions as well as enhanced financial support to companies by way of a range of Government backed loans, tax breaks[8] and the Coronavirus Job Retention Scheme (Furlough Scheme).[9]

CIGA is the most significant change to the UK’s corporate insolvency regime in 20 years.[10] Prior to CIGA, UK insolvency law had a number of tried and tested options for business rescue, but there were gaps when compared, for example, to best practice standards published by the World Bank[11] and the 2019 EU Restructuring Directive.[12] Changes in the insolvency regimes in several different countries showed a general convergence in the principal features of restructuring and rescue frameworks of sophisticated market economies. The UNCITRAL Legislative Guide on Insolvency Law[13] sets out provisions which are now seen as core components of a modern insolvency regime. Those core requirements include a reorganisation plan, a stay of enforcement action and the treatment of executory contracts.

With these international developments in mind, the Government had previously consulted on a range of reforms to the insolvency framework between 2016 and 2018.[14] As part of its response to these consultations the Government announced that it would implement the measures when a suitable legislative vehicle became available.

The three permanent CIGA measures considered by this evaluation are:

2.1 The Restructuring Plan (RP)

The RP is a new restructuring procedure which may be proposed by a company in financial difficulties. Under it, creditors are divided into separate classes, by similarity of rights and interests, by the proposer. After class division is approved by the court, the respective classes of creditors (and shareholders, if relevant) vote on the proposed RP. The RP will bind all classes of creditors (and shareholders) if more than 75% of creditors, by value, in each class vote in favour, once the RP is sanctioned by the court. If, however, not all classes vote in favour, a process known as ‘cross-class cram down’ can be sanctioned by the court, notwithstanding the votes of the dissenting class(es). This can only take place if at least one ‘in the money’ class of creditors has voted in favour and the court is satisfied that no member of a dissenting class is worse off than they would be in the relevant alternative (likely to be an insolvency procedure such as administration or liquidation).

CIGA introduced the RP with the insertion of a new Part 26A of the Companies Act 2006. Its provisions are largely based upon the provisions in Part 26 of the Companies Act 2006 which allows a company to propose a Scheme, to its creditors and shareholders, whether the company is in financial distress or not. The various temporary measures in relation to the COVID-19 pandemic, to support businesses during the pandemic, may have contributed to a slow start in the uptake of the RP. Between 26 June 2020 and 30 September 2022, 12 companies had an RP registered at Companies House.[15]

The RP had four primary policy objectives, the logic models for which can be seen in Annex A:

• To address the scenario where a secured creditor can block a company rescue, despite the proposals being well supported.

• To enable courts to sanction restructuring plans where it is fair and equitable to do so.

• To enable companies with viable businesses that are struggling to meet debt obligations to restructure with limited disruption to their operations.

• To provide an alternative measure to a Scheme in cases where the agreement of all classes of creditors is unlikely (as Schemes do not provide any mechanism for ‘cram down’ between classes).

2.2 Company Moratorium

The Moratorium provides struggling companies a short period of protection, initially 20 business days, from creditor enforcement action during which they can seek advice and agree plans for their rescue as a going concern. This protected period is designed to give companies a better chance of survival. The primary legislation for the Moratorium is found in Part A1 of the Insolvency Act 1986. It effectively replaces the previous Schedule A1 moratorium which only applied to small companies and was little used in practice. According to Insolvency Service monthly statistics 40 Moratoriums were obtained between 26 June 2020 and 30 September 2022.[16] As with RPs, the relatively low number of Moratoriums, compared to expectations, can be linked to the overlap between the CIGA permanent measures and the COVID-19 temporary measures mentioned above. It is conceivable that some companies that would have been able to make use of the Moratorium might not have done so due to other Government support measures still in place at the time.

The Moratorium had four primary policy objectives, the logic models for which can be seen in Annex A:

• To provide companies a period of protection so they can seek advice, negotiate with creditors and agree plans for their rescue as going concerns.

• To enable companies using the Moratorium to benefit from greater opportunities for company survival.

• To provide companies using the Moratorium enough time during a ‘breathing space’ to consider the best option for the company.

• To ensure that all struggling companies that meet the eligibility criteria should be able to use the Moratorium.

2.3 The Suspension of Termination (ipso facto) clauses

Section 233B of the Insolvency Act 1986 generally prohibits the enforcement of ‘termination clauses’ in contracts for the supply of goods and services that engage upon an insolvency event. This means suppliers must continue to fulfil their commitments under contracts with the debtor company in the event of it entering a formal insolvency. It is more extensive than the pre-existing provisions found in ss 233 and 233A in terms of the types of contracts affected. Due to its nature, there are no available statistics to reflect the level of engagement with this measure.

The Suspension of Termination (ipso facto) clauses had three primary policy objectives, the logic models for which can be seen in Annex A:

• To prevent companies in insolvency procedures from being held ‘hostage’ by suppliers either by withdrawing supply completely or by asking for additional ‘ransom’ payments.
• To provide a valuable tool to support company rescue and thereby provide better returns to creditors.
• To mitigate the transference of risk onto suppliers, via a statutory ‘hardship provision’ to protect suppliers that cannot (rather than will not) supply.

It should be noted that the Government pandemic-related interventions in the economy have likely had a significant impact on the level of engagement with the three permanent CIGA measures. The data collected should therefore be considered against this backdrop.

3. Methodology

As part of good policy making and in line with the Better Regulation framework a PIR of the new permanent measures is required. Whilst the PIR will be written by the Insolvency Service and published by 26th June 2023, the University of Wolverhampton was commissioned (following fair and open procurement) to contribute to the evidence base that will inform the PIR. This report by the University of Wolverhampton reflects that evidence base. The research team brings with it experience of conducting a number of qualitative and quantitative research projects in the area of insolvency and corporate restructuring. The research team is independent of the Insolvency Service.

The research team is grateful for the full co-operation and support it has received during the project from the Insolvency Service. Similarly, the research team is extremely grateful to all the insolvency professionals who gave up their valuable time to assist in the data collection.

3.1 Research Design

The main research questions which will inform the PIR of the CIGA measures are:

1. To what extent have the policy objectives been achieved?

2. Did the benefits of the measures outweigh the costs? (NB this research question is intended only to collate evidence to inform a value for money evaluation that will be conducted by the Insolvency Service in-house as part of the PIR).

3. Were there any unintended consequences?

4. What worked well and less well?

5. Could the measures be improved upon?

6. How did external factors influence the delivery and functioning of interventions?

Separate research questions specifically considered the impact on employees’ interests:

1. What is working well, less well and why?

2. What could be improved?

3. How has context influenced delivery?

To address the research questions, it was decided that a process evaluation,[17] utilising a mixed methods approach would be suitable. This approach does not quantify the impact of the measures, or allow causality to be inferred. Such approaches were ruled out, for example, due to the difficulties in estimating a counterfactual as noted in the CIGA Impact Assessment.[18] However, the process evaluation approach provides learnings around how the measures are working to inform future policy making. Furthermore, this approach enabled the research to be flexible in adapting to potential impacts from the pandemic.

The first part of the evaluation was covered in the Interim Report. It involved qualitative research, in the form of in-depth semi-structured interviews (Stage One) and ran from September 2021 to March 2022. The second part of the evaluation (Stage Two) utilised an online survey of IPs, further semi-structured interviews which ran from March 2022 until September 2022, and Case Studies.

The evaluation commenced with qualitative research to make the most of serendipitous findings whilst the CIGA measures continued to unfold. Understanding the ‘who’, ‘why’ and ‘how’ questions considered in qualitative research helped the research team understand if the measures were working as intended and also informed the quantitative assessment in Stage Two.

Semi-structured interviews were deemed appropriate as they are a flexible research tool. The interviewer has a number of specific questions and exercises discretion in the manner in which the questions are asked and the order in which they are asked. Semi-structured interviews can have the advantage over structured interviews as they allow for the acquisition of detailed views but also allow those being interviewed to express views in their own words on the areas being evaluated (or related areas).

The research team conducted the interviews by asking a series of questions broken up into four sections dealing discretely with, respectively, General Questions on the CIGA measures, Part 26A RPs, the Moratorium, and Termination clauses. The interview questions were designed to address the main research questions, the answers to which are interpreted and used to evaluate the CIGA measures for the purposes of the PIR.

Surveys are a data collection method commonly used to collect data from a large number of individuals. Online surveys can be an effective and lower cost method to engage a large number of individuals than other methods of primary data collection, and as such are used widely. Surveys are widely used in evaluation.

Case Studies offer an in-depth investigation of a phenomenon of interest within its real world context. Cases are often purposively selected because they are unusual and reveal information – rather than being representative. They use multiple sources of evidence, quantitative or qualitative to build a deep understanding, and can employ various data collection methods. They can help capture real life situations in depth and work well in combination with or supplementing other methods.[19]

Survey Sample

During Stage Two, the research team created an online survey directed at all licensed IPs, of which there were 1,541[20] in the UK in 2022. A sample frame of IPs is available publicly,[21] however, for a more user-friendly version, the Insolvency Service provided one in line with its personal information charter.[22] For good practice, any IPs who did not want their details on gov.uk were removed from the sample frame prior to being shared. This resulted in a sample frame of 1,517 IPs. The survey was distributed to all IPs on this list via email.

One way to calculate required sample size is to use a margin of error calculator. Using this method, with a 95% confidence level and a margin of error of +/- 5% a targeted response number of around 300 was set. The survey received 96 responses in total by the time it was closed in mid-September 2022 (although for a large majority of questions there were only 91 substantive responses). Using the 91 responses as the frame of reference provides a response rate of 6%.

The response rate was lower than targeted. A number of steps were taken to try and boost the number of responses by referring to established academic guidance.[23] As a final encouragement the University of Wolverhampton undertook to make a charitable donation from its research fee to Birmingham Children’s Hospital if at least 150 responses were received. Despite the survey responses not reaching 150, the University of Wolverhampton is still making the charitable donation.

3.2 Interview Sample

The aim of qualitative research is to provide an in-depth understanding of a phenomenon rather than to establish its prevalence, probability or causality. It concentrates on considering breadth and depth rather than scale.[24] The interviews conducted in Stage One and Stage Two therefore required an approach to the sampling of potential interviewees which would enable the research team to gather a wide variety of valid perspectives.

The research identified the populations of interest as IPs, legal professionals, trade associations and government agencies. Those selected for interview were purposively sampled, a sub-strand of which is expert sampling, whereby participants are recruited due to a high degree of knowledge about the study area. Interviewees were therefore asked to participate based on their characteristics of having knowledge and/or experience of the CIGA measures. However, some participants were recruited outside of these criteria, to capture a variety of views, such as from those who may have avoided using the measures for certain reasons.

A cross-section of the IP profession was identified which had knowledge or experience of the CIGA measures. For example, all the IPs who the research team knew had acted as Monitors of a Moratorium were contacted. Similarly, experienced IPs from different parts of the market who engage in policy and technical matters nationally and internationally were approached. Lawyers and IPs who had acted in relation to RPs were contacted along with lawyers whose profile includes engagement with policy and technical matters. Trade associations and government agencies who had participated or commented on the pre-CIGA consultations and debates were approached.

In addition, the survey conducted during Stage Two asked respondents if they were willing to be interviewed. A number of IPs kindly agreed to be interviewed from this group. Further views from the IP profession were provided by responses to the free text question towards the end of the survey.

As at the end of September 2022, a total of 55 interviews had been conducted: 25 with IPs (13 in Stage One and 12 in Stage Two); 20 with lawyers (14 in Stage One and 6 in Stage Two); and 10 interviews with trade associations or government agencies (6 in Stage One and 4 in Stage Two).

Case Studies

Two Case Studies have been selected to include as part of Stage Two, one for the RP and one for the Moratorium. Case Studies fall into the category of ‘critical instance’, and can be used to examine a situation of unique interest or when a highly generalized or universal assertion is being questioned. The Case Studies are available below in Annex E.

For the RP Case Study the interest being considered is:

a) use by an SME (challenging the suggestion from the Interim Report that RPs are not appropriate for use by SMEs); and

b) impact on employees (whereby the Case Study is more illustrative than a critical instance and adds realism to how the measure works in practice).

The Moratorium Case Study is:

a) An instance of where the Moratorium has worked well, that is, where it has been used prior to the company entering a subsequent procedure, for example, a CVA (showing a situation of unique interest); and

b) An example of where there has been a positive impact on employees (again this is illustrative).

Both the RP Case Study and the Moratorium Case Study have been selected using purposive sampling as both involve cases of special interest.

Both Case Studies have been drafted using data from interviews with practitioners involved in the respective cases and secondary data analysis of publicly available data whether on professional firms’ websites or at Companies House.

Research questions

The research questions addressed by the Case Studies are:

Case Study 1 – RP - Houst Ltd;

How has the measure been used in this circumstance?

How can the measure be used by SMEs?

For SMEs, how does use of the procedure compare to existing ones such as Schemes of Arrangement or CVAs?

What has been the impact on employees?

• Has the measure helped protect jobs?

• What has been the impact of the measures on employee entitlements?

• Has there been engagement with employees in the process?

Case Study 2 – Moratorium - Bespoke Managed Space Borough Ltd;

How has the measure been used in this circumstance?

Did the Moratorium provide adequate protection so the company could negotiate and agree a rescue as a going concern?

Was the length of Moratorium sufficient to fulfil its aims?

What has been the impact on employees?

• Have the measures help protect jobs?

• Has there been engagement with employees in the process?

3.3 Data Collection

Interviews

The qualitative research was conducted virtually via a series of in-depth semi-structured interviews with IPs, lawyers and trade and government agencies. The interviews were conducted either by Professor Peter Walton or Dr Lézelle Jacobs.

Interviews were conducted using Microsoft Teams. Where an interviewee consented, the interview was recorded and a verbatim transcript of the interview was generated via Teams. Where a recording was not made, the interviewer took notes during the interview.

All interviewees (and organisation representatives) were asked to complete a consent form which explained that all interviews would remain confidential unless those being interviewed wished to have certain views attributed to them. Only the research team of Professor Walton and Dr Jacobs have access to the recordings, transcripts and notes.

Although the large majority of the qualitative research was conducted using semi-structured interviews of individuals, the views of trade bodies were obtained by way of roundtable discussions with their members. The questions posed at the roundtable discussions were based upon the questions used in the semi-structured interviews. Those taking part in interviews or discussions were provided prior to the interaction with a topic guide which is replicated at Annex B.

Semi-structured interviews can vary in the degree to which items are fixed or are flexible. In this case, interviewees (and representatives of trade bodies) did not always have extensive experience or views on each of the CIGA provisions. Therefore, the use of semi-structured interviews permitted flexibility with regard to the CIGA provisions the interviewee (or trade body) wished to concentrate on. Nevertheless, all participants were asked general questions on each of the CIGA provisions first. The interview either then: i) proceeded to discuss the CIGA provisions in the following order: RPs, Moratoriums and Termination (ipso facto) provisions; or ii) where there was specific knowledge of, or experience in, one particular CIGA provision, the interview or roundtable discussion moved directly to that topic with the other provisions being touched upon later and usually in outline only.

The interviews lasted for between 30 minutes and one hour.

Survey

The survey questions were developed to test some of the findings from Stage One and to answer some of the research questions which had not yet been addressed. Many of the questions were worded in a way which reflected the policy objectives of the CIGA measures.

The survey used Microsoft Forms as its platform as it was considered that most, if not all, IPs would have compatible software. The survey was designed with the advice of the Insolvency Service and, due to the topic’s complexity, was piloted with three volunteer IPs from the General Technical Committee of R3 (the IP trade body) as well as representatives of R3 with experience of operating surveys of the IP profession.[25] Based upon the feedback received from the pilot, a number of questions were amended to make their meaning clearer. It was also decided to put questions about the Moratorium at the beginning of the survey as there was a view that beginning such a survey with questions about the RP might discourage a proportion of the IP profession which does not have any experience of the part of the market where RPs are encountered.

In total the survey was composed of 36 questions and was estimated to take around 10 minutes to complete. The survey questions are replicated in Annex C. Only the research team has access to any personal data, such as where survey respondents had provided their contact details to take part in interviews.

3.4 Analysis

The consent forms, a spreadsheet with the details of those contacted and interviewed, the data from the interviews (or group discussions) and the survey responses were retained and are stored on a shared University of Wolverhampton drive to which only the research team has access.

A thematic analysis was carried out considering answers to the interview questions. Familiarisation with the data and analysis began as interviews were ongoing. The questions used in the semi-structured interviews were each linked to specific research questions. The thematic analysis was therefore framed around the research questions.

A number of initial codes (where some aspect of the data is assigned a descriptive label) were developed as the interviews progressed and this list was added to as more data became available. The list of codes was kept by the research team in a document on their shared drive to which each added as more data became available. The list of codes resulting from the data was then collated into themes. Some of the codes were identified as themes in their own right whilst others were collated with one another to form a theme. As the interviews proceeded, a number of common themes under each of the research questions was identified. These themes appear as sub-headings to the research questions in the Findings reporting.

Where interviews were recorded, the transcripts were analysed to identify the list of codes. Where there was no transcript (due to the interview not being recorded) the interviewer’s notes were similarly analysed. In each case the interviewer noted common themes. Each member of the research team has access to the other’s transcripts and notes which are stored on the shared drive. The research team met to discuss the results after each interview and to discuss the codes and themes identified. By discussing the codes and resultant themes, and by reading through each other’s transcripts and notes, the research team was able to ensure a consistent approach to theme identification.

There was generally a strong degree of agreement between IPs and lawyers. Where there was any significant divergence of opinion this is considered in the respective Interpretation sections of the Findings below. As part of the analysis of the interview data the research team considered whether the interviewees were expressing views based upon their own experience of the CIGA measures or their own understanding as to how the measures might operate. Equally, after the publication of the Interim Report, during some interviews conducted as part of Stage Two, it became apparent that some interviewees were, at least in part, relying upon the findings of the Interim Report for the basis of their views.

It is recognised that trade bodies represent their members and will therefore tend to show bias in favour of their members’ interests. To similar effect, Government bodies such as HMRC have statutory duties to consider in forming their approach to the CIGA measures. This was taken into account by the research team when analysing the feedback. The interviews conducted during Stage Two did not produce a large amount of new data but there were some new points from practice which were helpfully identified by interviewees which had not been identified by the end of Stage One (which had been completed by the end of February 2022). By the end of September 2022, the final 5 interviews were no longer producing any significant new data. The research team believes that up to this point the data produced by the interviews reached data saturation, meaning that new data was repeating what was expressed in the earlier data. No new themes are likely to emerge from the data collected until practice develops further.

The survey responses were analysed using descriptive statistics to summarise the data, in this case highlighting counts and proportions of responses to questions. The open text responses to the survey were used to add context to some of findings from both the surveys and interviews. The survey responses in the main body have been summarised and so may not sum to 100%. Full survey results can be seen in Annex D.

The post-pandemic economy does not appear to be returning to normal. Company insolvencies are rising and the economic climate is difficult for business.[26] Official statistics show an increase in companies being wound up (when compared to the pre-pandemic period) but a decrease in the use of rescue procedures such as administration or CVAs.[27] The difficult trading conditions may see increased use and need for the CIGA measures and so it is possible that new data will become available as practice continues to develop.

3.5 Reporting

The Findings section below is reported in the following order:

Key findings (including those from both the Interim Report (Stage One) and New Data (Stage Two) generally for the measures and individually for each measure).

Then for each research question relevant to each measure:

Headlines from the Interim Report;

New Data (if any);

Interpretation.

In reporting the data, the research team sometimes has chosen to synthesise or summarise the views or experiences of interviewees or survey respondents with similar opinions to create typical or illustrative points. The research team has prioritised common or insightful themes when reporting findings. In doing so, it is recognised that some of the nuance between interviewees and survey respondents may be lost. However, some themes have been identified based upon, for example, one interviewee, where the theme is particularly interesting or insightful.

Several themes identified from the interviews and survey receive support from a number of other sources. CIGA has produced a number of learned journal articles, reports, blogs and webinars dedicated to its measures. The research team has considered such sources, and they have been used as a form of triangulation to assist in interpreting or validating the interview data.

3.6 Uncertainties and Limitations

Interviews

It is recognised that the role and purpose of the qualitative research conducted by way of the 55 interviews are not intended to be representative of, or generalisable to, the wider population. Instead, its purpose here is to provide an in-depth understanding of how the policy is working.

Due to the largely purposive sampling applied to the interview process, it has been possible to obtain data from those most experienced in, and knowledgeable of, the CIGA measures.

The research team recognises that due to its previous experiences as impactful researchers in insolvency law and restructuring, there is a potential risk that its own views may influence both the data collection and analysis of the data. To similar effect, as well as being aware of the need for reflexivity, the research team is conscious of the risk of confirmation bias when interpreting data, in terms of evidence confirming its own existing views or those of others articulated in media outside of the interview process, for instance, in articles, reports, blogs or webinars. The research team recognises that the views of some interviewees were not based upon their own views but upon views they had read or heard, not least from the Interim Report from Stage One. This is an example of the Observer Effect, that is, by researching and publishing findings in the Interim Report, the research team may have influenced the subsequent data collected.

The use of semi-structured interviews mitigates against these risks in the data collection process, as the questions being asked are directly linked to the main research questions. Where interviewees’ views were based on external sources rather than their own experiences, the interview process allowed for this to be identified. The analysis of the data is limited to the themes raised by interviewees and survey respondents and the research team has attempted to remain objective in its assessment of those themes.

The use of semi-structured interviews also carries the risk of social desirability, whereby participants may look to present themselves in a favourable fashion. However, this risk is mitigated to a degree by the research being conducted independently of the Insolvency Service.

The survey

As already noted, the number of useable responses to the survey was 91, compared to a target of around 300. In the past response rates have been used as a proxy for how representative a survey is. However, research has found that there is generally a weak relationship between response rates and non-response bias. This means a low response-rate in itself does not necessarily indicate a non-representative sample, but the risk of non-response bias (i.e. systematic differences between those who agree to participate and those who do not) could be a factor in this research.[28] A lower response rate does increase the margin of error associated with results, i.e. how precise the results are. Based on the number of responses to the survey, the maximum margin of error can be quantified as + or – 10 percentage points, based on a 95% confidence level. This means that a single proportional response to a question could move by up to 10 percentage points in either direction (e.g., if a survey response was 22%, the uncertainty limits are from 12 to 32%). Readers should be aware of this uncertainty when interpreting the results.

The results of the online survey have provided interesting views from a larger cross section of the IP profession than the interviews alone could provide, although the cross-sectional design represents a single point in time. It is noticeable that a good many responses to specific survey questions were ‘Don’t Know’ which suggests that practice is still developing in relation to the CIGA measures or that improved dissemination of the utility of such measures might be helpful. The uncertainties around how the CIGA measures are working in practice experienced by some practitioners is supported by some of the free text comments provided at the end of the survey.

Case Studies

Whilst the Case Studies bring context and depth, the findings should not be generalised to different context, situations or phenomena.[29]

Overall

The results from the interviews, survey and case studies have been effectively triangulated and any anomalies considered when the data has been interpreted. This mixed-methods approach helps to mitigate against the risks associated with any single method.

3.7 Ethics

The methodology received ethical approval from the University of Wolverhampton’s Faculty of Arts, Business and Social Sciences Ethics Committee on 12th October 2021.

4. Findings

When considering the findings, it is important to be aware of the uncertainty and limitations mentioned in section 3.6.

4.1 General comments on the CIGA measures

Key findings

• There has been a broadly positive reaction to the CIGA measures

• There are aspects of the measures that are proving difficult to understand by lawyers and IPs alike

• The official guidance is helpful in aiding understanding of the measures, but more specific guidance might be needed

Headlines from the Interim Report

Stage One of the evaluation demonstrated that the three permanent measures have broadly been seen as a positive addition to the UK’s rescue framework. At the time of the Stage One evaluation many of the CIGA measures were largely untested by many practitioners (IPs and lawyers) due to Government support for businesses during the pandemic greatly reducing the need for companies to restructure. The wealth of jurisprudence on Schemes meant that many with experience thereof felt comfortable extending their expertise to RPs. Moratoriums (as a standalone procedure) were reported as essentially brand new to practitioners, and concerns were raised about a lack of pre-existing case law guidance and practical experience. The new Termination of supply (ipso facto) provision was not fully utilised yet by IPs during Stage One. Interviewees in Stage One noted the helpful guidance available but thought more specific guidance could be provided. Some interviewees (IPs and lawyers) expressed the opinion that the new measures were not easy to understand without the assistance of expensive legal advisors.

New Data

• Ease of understanding

Question 2 survey data indicate that a third (33%) of respondents found the permanent CIGA measures difficult to understand. 23% found them easy to understand whilst 43% of respondents found the measures neither difficult nor easy to understand.

During a Stage Two interview one IP expressed the opinion that many IPs would not understand the term ‘ipso facto’ when used in describing the effect of s 233B.

• General guidance

The data gathered from the survey responses to Question 3 indicate that respondents were divided about whether the official guidance is helpful or not. Over a third (38%) (4% ‘very helpful’ and 34% ‘somewhat helpful’) of respondents found it either helpful or somewhat helpful, 1% found it very unhelpful and 26% found it somewhat unhelpful whilst 25% found it neither helpful nor unhelpful.

Interpretation

The fact that around a third of respondents found the measures difficult to understand seems to suggest that there are issues regarding the complexity of the measures. This corresponds with the opinions expressed during Stage One interviews where it was stated that the new measures were not easy to understand without the assistance of expensive legal advisors. However, it could be argued that the lack of understanding may also in part be due to a lack of training or continuous professional development by certain IPs.

It would appear that the Latin phrase ‘ipso facto’ is used as technical language by some in the insolvency profession when referring to s 233B. Arguably, it is a phrase that might be more familiar to legal practitioners than members of the accounting profession. The use of this phrase is therefore not inclusive terminology and can be seen as unhelpful. It should be noted that the legislation does not refer to the s 233B provisions as ‘ipso facto clauses’ but rather as ‘Protection of supplies of goods and services’. In their response to the 2016 Consultation the Government referred to these provisions as ‘Termination clauses (sometimes called ‘ipso facto’ clauses)’.[30] Evidently the use of the Latin terminology is an issue created by practice and not necessarily the legislation. Guidance on the use of the Latin terminology might be needed to aid the profession in forming a better understanding of the provision and how it operates.

A recurrent theme of interviews and the online survey was that a large proportion of the insolvency profession has not yet had direct experience of the CIGA measures. It is, therefore, reasonable to think that until respondents have personal experience of the measures, their views on the usefulness or otherwise of available guidance is theoretical rather than practical.

The survey responses suggest some divergence on how useful the official guidance is. During Stage One of the evaluation, even some interviewees with experience of the measures, expressed the opinion that more specific guidance on the measures was needed.

It may be that some of the inherent complexity of aspects of the CIGA measures necessarily leads to guidance itself on those measures being complex. If aspects of the CIGA measures were made simpler to understand and apply, it is likely that guidance would be more easily grasped and seen to be more useful. Examples of complex aspects highlighted during both Stage One and Stage Two include: the relevant comparator test in RPs; and the definition of contracts involving ‘financial services’ in the context of the Moratorium.

4.2 Part 26A Restructuring Plan

Key findings

• The policy objective of addressing the blocking of well-supported restructuring proposals by certain creditors has been met

• The cross-class cram down power has been used successfully in cases where previously a Scheme on its own would not have been effective

• The policy objective of enabling companies with viable businesses that are struggling to meet debt obligations, to restructure with limited disruption to their operations has been met

• Successful RPs appear to have resulted in job losses being avoided

• The RP builds on existing case law governing Schemes, which has been of assistance to all stakeholders in the early cases and will surely remain helpful as more companies attempt to use this measure

• RPs are seen as too costly and time-consuming for use by all sizes of company

• RPs could be improved whereby simple cases might be dealt with at a single hearing

• Alternatively, in simple cases the first hearing could instead be dealt with out-of-court, on paper

• RPs could be improved whereby simple cases might be dealt with by an Insolvency and Companies Court judge

• The costs of challenging an RP are seen as excessive which hinders the policy objective of protecting dissenting creditors

• Without greater disclosure and transparency requirements the envisaged protection of creditors may be diminished

• There is no overwhelming support to amend the primary legislation governing RPs to reflect provisions similar to like procedures in overseas jurisdictions

4.2.1 To what extent have the policy objectives been achieved?

Headlines from the Interim Report

Stage One data indicated that the general view of interviewees was that the RP has met the policy objectives of the measure. Interviewees thought the policy objective of addressing the blocking of well-supported restructuring proposals by certain creditors was seen to have been met. The costs of challenging an RP at sanctioning stage were seen as excessive which hinders the policy objective of protecting dissenting creditors through court sanction. The Stage One interviewees indicated that they thought the RP to be a suitable alternative to a Scheme in cases where the agreement of all classes of creditors is unlikely. There was some limited data in Stage One to indicate that the RP will allow a company to restructure its business with minimal disruption to operations.

New Data

Survey data indicate that a majority of respondents (54%) believe the RP to be an effective tool in cramming down a secured creditor that would otherwise be able to block a company rescue, despite the proposals being well supported. Only 13% of the respondents to Question 14 thought that the RP is an ineffective tool to address such a scenario. 23% of the respondents indicated that they ‘don’t know’, whilst 10% indicated the measure was ‘neither effective nor ineffective’.

The answers to Question 15 indicate that the largest percentage of respondents (58%) believe the court always or mostly sanctions RPs where fair and equitable to do so. 7% of the respondents thought the court sometimes only sanctions RPs when it is fair and equitable to do so. No respondents thought that the court ‘rarely’ or ‘never’ sanctions RPs fairly and equitably. There seems to be some uncertainty expressed by respondents with a lack of experience/knowledge of the measure with 34% indicating that they ‘don’t know’.

It was clear from the interviews of practitioners involved in the Houst Ltd RP (a Case Study is provided in Annex E) that the court is alert to protecting the interests of creditors. Even where a dissenting creditor was not willing or able to present its arguments to the court at the sanction hearing, the court in Houst Ltd ensured that it had sufficient information to make an informed decision. The judicial commitment to ensure justice and to try to keep costs down went as far as requesting further evidence from the company even after the hearing had ended. This ‘inquisitorial’ approach to the hearing is perhaps one of the strengths of the measure.

Question 16 asked respondents to consider how well the RP enables companies with viable businesses to restructure with limited disruption to their operations. The responses to Question 16 show that only a small percentage of respondents (15%) indicated that they believed the RP would cause a disruption to business, with a large percentage (52%) of respondents indicating the belief that the RP enabled companies to restructure with minimal disruption to their operations. A third (33%) of the respondents indicated a lack of knowledge regarding any disruption to business by the measure.

Data from Question 17 indicate that most respondents (61%) believed an RP is (or will be) an effective alternative to a Scheme. Only 4% of the respondents to the question thought it to be an ineffective alternative. Many respondents (24%) answered ‘don’t know’ to the question and 11% said that they thought it was neither an effective nor an ineffective alternative to a Scheme.

Interpretation

Stage Two data confirm the findings from Stage One in that the RP and specifically the cross-class cram down provision is generally seen as an effective addition to the UK’s rescue toolkit. The successful cram down of HMRC as preferential creditor in Re Houst Ltd,[31] is an example of the use of the measure by a SME company. It should be noted that priority rules do not apply in the RP and as such HMRC was not regarded as a preferential creditor. However, due to the relevant alternative test, priority rules might be relevant for class formation and the cram down. Consequentially, HMRC formed its own class as the preferential creditor for purposes of considering their position in a likely alternative procedure, in this case a pre-pack administration.

The results of the survey and the interviews conducted in Stage One and Stage Two suggest that there is general trust in the court’s ability to protect stakeholders.

Based on the evidence, to what extent have the following policy objectives been met?

• To address the scenario where a secured creditor can block a company rescue, despite the proposals being well supported.

This policy objective has been met.

• To enable courts to sanction restructuring plans where it is fair and equitable to do so.

This policy objective has been met in part. The cost of challenging an RP at sanctioning stage seem to be a stumbling block to the protection of dissenting creditors

• To enable companies with viable businesses that are struggling to meet debt obligations to restructure with limited disruption to their operations.

This policy objective has been met.

• To provide an alternative measure to a Scheme cases where the agreement of all classes of creditors is unlikely (as Schemes do not provide any mechanism for ‘cram down’ between classes).

This policy objective has been met.

4.2.2 Did the benefits of the measures outweigh the costs?

Headlines from the Interim Report

The cost involved with all aspects of the RP was a recurring theme amongst interviewees during Stage One of the evaluation, with most expressing concerns about the costs influencing the accessibility of the measure by different sizes of companies. It was also thought that the costs involved in challenging the approval of an RP may be seen as ‘excessive’ and start to accumulate even before a creditor gets to court.

New Data

The answers to Question 18 indicate that an overwhelming majority (90%) of respondents believe the RP to be too expensive for use by the SME-market (61% ‘too high’ and 22% ‘quite high’). Only a small percentage (2%) of respondents thought that RPs are not too expensive for use by the SME-market, whilst only 8% of respondents indicated that they ‘don’t know’.

Interpretation

Stage One data are confirmed by the responses to the survey. The RP remains to be perceived as a costly measure.

4.2.3 Were there any unintended consequences?

Headlines from the Interim Report

A main unintended consequence identified during Stage One of the evaluation was the cost involved in challenging the application which results in only certain creditors being able to afford the opportunity to protect their interests through such a challenge. It was stated that the need for the use of expert witnesses drives up the cost of the challenge and so is likely to make such challenges less straightforward.

New Data

Interview data suggested that the consequences of the decision in Oceanfill Ltd v Nuffield Health[32] were not foreseen when the court sanctioned an RP which had compromised various rights of different classes of landlords. The court decided that the RP did not prevent the landlords from enforcing their rights against a previous tenant under an authorised guarantee agreement (under the Landlord and Tenant (Covenants) Act 1995) executed when the lease had been assigned to the RP company. The decision recognised that the right of indemnity of the previous tenant against the RP company was a ‘ricochet’ claim. The court concluded that the RP did not address third party ricochet claims. It observed that the omission to do so might have been deliberate or inadvertent.

Interpretation

The RP is a new procedure which is heavily reliant upon Scheme jurisprudence. In recent years, CVAs have been used to compromise the claims of landlords.[33] Such CVAs will usually do this expressly and, depending upon the facts, will be seen as binding consensual agreements capable of releasing guarantors. RPs, in the same way as Schemes, are sanctioned by the court and take effect by operation of law. The RP in Oceanfill did not prevent the landlords calling on the previous tenant to pay under its authorised guarantee agreement. The RP did not deal with the risk of ricochet claims from the previous tenant. In future restructuring cases dealing with landlords, the risk of such ricochet claims will need to be considered by those advising the RP company. Depending upon the facts, this may impact upon advice to consider whether to pursue either an RP or a CVA.

4.2.4 What worked well and less well?

4.2.4.1 What worked or is working well?

Headlines from the Interim Report

Interviews from the Stage One evaluation indicated that the RP was generally viewed as a welcome addition to the restructuring offering in the UK. However, the research team received various suggestions regarding how the RP could be adapted or tweaked to improve the delivery and functioning of the measure as well as some suggestions as to how the few concerns that were raised could possibly be addressed. On balance the RP received positive reviews from interviewees with experience of the measure during Stage One.

New Data

The data from the Stage Two evaluation show that the cross-class cram down is believed to be working well in practice to address the scenario where a secured creditor would otherwise be able to block a company rescue, despite the proposals being well supported (see 4.2.1 above).

Interpretation

Stage Two data confirm the overall general positive view towards the RP.

On balance the role of the court in sanctioning RPs where it is just and equitable to do so, seems to be viewed as a positive. The judicial oversight and sanction requirement for an RP offers reassurance to stakeholders.

4.2.4.2 What worked or is working less well?

Headlines from the Interim Report

Stage One interviews indicated that RPs are seen as too costly and time-consuming for use by all sizes of company. Concerns regarding information asymmetry[34] were raised. Without greater disclosure and transparency requirements the envisaged protection of creditors was thought to be diminished.

New Data

• Burden on Business

Following from Stage One a specific question relating to RP costs was included. As mentioned above, the survey data to Question 18 indicate that an overwhelming majority (90%) of respondents believe the RP to be too expensive for use by the SME-market (61% ‘too high’ and 22% ‘quite high’). Only a small percentage (2%) of respondents thought that RPs are not too expensive for use by the SME-market, whilst only 8% of respondents indicated that they ‘don’t know’. Free text comments relating to the costs included amongst others: ‘Restructuring plans and moratoriums do not appear fit for purpose for the SME market. They are: too complex, too costly, too time intensive and provide a larger than necessary burden on IPs.’

The burden on business in relation to affected creditors was tested in survey Question 19. This shows that a majority of respondents (76%) believe that the cost of challenging an RP is a deterrent to dissenting creditors (29% a ‘significant deterrent’, 37% ‘somewhat of a deterrent’ and 10% ‘a slight deterrent’). A mere 2% indicated that they do not believe the costs of challenging an RP is a deterrent to dissenting creditors and 21% of the respondents indicated that they ‘don’t know’.

• Information asymmetry

The issue of inadequate information prior to the approval of the RP was raised again during Stage Two interviews. One trade association in particular expressed concern about the timing and nature of the information received prior to the convening hearing. The interviewee noted that on one occasion their member was notified a mere 48 hours before the RP convening hearing took place.

Survey data to Question 20 show that a large percentage (41%) of respondents did not know whether dissenting creditors receive adequate information at the right time to enable a challenge to an RP. However, 39% of the respondents expressed the view that dissenting creditors do usually receive adequate information, with 13% stating that they ‘sometimes’ receive adequate and timely information and only 8% indicating that creditors ‘rarely’ receive adequate and timely information.

Interpretation

The cost involved with getting an RP approved was one of the largest concerns expressed in Stage One of the evaluation. This concern has been confirmed by the data (interview and survey) from Second Stage. Despite the negative statements regarding the cost of RPs and their perceived inability to work well for the SME-market, the recent sanction of an RP for Houst Ltd (see Case Study in Annex E),[35] a company that falls within the SME-market description, proves that it is possible for the SME market to use an RP. This development can be seen as being indicative of a ‘tipping point’[36] in that the situation seems to be changing due to more companies making use of the measure and it becoming more accessible to the SME market due to established principles being created through case law.[37]

A very small percentage of respondents indicated that they ‘don’t know’ whether there is a cost issue. In comparison to other RP related questions, the percentage of respondents indicating a lack of knowledge of the procedure in this question is decidedly lower. This might be attributed to an influence on the opinion of respondents by the Interim Report. Regardless, there seems to be a perception problem in relation to the costs associated with the RP. Should this perception issue remain unaddressed it could adversely influence uptake and use of the measure.

The responses to Question 19 and 20 seem to indicate that cost rather than adequate and timely access to information is regarded as an obstruction to the launching of a successful challenge to an RP. However, the cost of challenging an RP is more than merely the cost in relation to obtaining legal counsel but includes other costly services such as accounting and valuation services. It would therefore seem that cost and information are connected (see the discussion under 4.2.5 below regarding the guidance in the Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006) pertaining to notification requirements).

4.2.5 Could the measures be improved upon?

Headlines from the Interim Report

Most suggestions received during Stage One of the evaluation relating to the improvement of the measures related to how the burden on business could be reduced. It was thought that RPs could be improved whereby less complex cases might be dealt with in a single hearing and/or by an Insolvency and Companies Court judge. It was suggested that a standardised form or template could reduce the costs and time associated with RPs significantly. A need to address disclosure and transparency in the RP was also mentioned and it was suggested that there should be increased disclosure with a high level of transparency. Some interviewees made suggestions for lowering the consent threshold in line with similar procedures in foreign jurisdictions. Lastly, it was suggested that multiple debtor entities should be allowed to be party to the same RP.

New Data

• Reduce the Burden on Business

Question 21 required respondents to indicate how well they thought less complex RP cases could be dealt with using a single court hearing. The responses indicate that just over two thirds (67%) of respondents believe that simple RPs could be dealt with via a single hearing. In contrast, 10% of respondents thought it would not work well and 24% indicated that they ‘don’t know’.

• Transparency and disclosure

The need to address the information asymmetry through transparency and timely disclosure was emphasised again during Stage Two interviews.

• Consent Threshold

Answers to Question 32 indicate a divergence of opinion as to whether the consent threshold for the RP ought to be reduced. However, a slightly greater percentage of respondents (39%) thought that the threshold should remain at 75% than the respondents who thought it should be reduced to two-thirds in value at 33%. A smaller percentage of respondents (17%) thought it should be reduced to a simple majority and 12% indicated a lack of knowledge.

Interpretation

During Stage One it was suggested that to lower the burden on business an unnecessary convening hearing could be dispensed with, in favour of having a single sanction hearing. Although this suggestion relates to a possible way to save on costs, it might also prove to be an effective time saving suggestion. The Stage Two results of the survey indicate that most respondents agreed that there might be appropriate circumstances where one hearing would suffice. This would operate on the assumption that in SME cases the issues might be less complex and/or class formation more straightforward and therefore, a convening hearing might be unnecessary.

An important aspect to consider in this regard is the Government’s intention to have RPs broadly follow the process of approval of a Scheme, and in the process, enable courts to draw on the existing body of Part 26 case law due to the overall commonality between the two measures.[38] Stage One interview data indicated that the wealth of jurisprudence on Part 26 was regarded as being of great assistance to companies attempting to use the measure. It should therefore be noted that reducing the number of hearings in some cases might undermine the intentions of the Government and lead to uncertainty.

The accepted purpose of the convening hearing might also be relevant here. It is accepted that this is for the court to address any issues which may arise as to the constitution of meetings of creditors[39] and to focus on the jurisdictional issue of class composition.[40] The function of the court at this first stage is not to consider the fairness of the proposed scheme.[41]

Perhaps an alternative to reducing the number of hearings would be to retain the two-step process of the RP, consistent with that of Part 26, but to allow for step 1 to be dealt with out-of-court and on paper only in the case of SMEs. This would allow companies to save on cost but retain the purpose of the first step as well as the benefit of the Part 26 case law. Where more information is needed at step 1 the ability to request more information can be built in.

As more RPs are approved, it has become clear that the role of the IP may include provision of advice prior to approval, and acting as Plan Administrator once the RP has been approved. Although not an Insolvency Act office holder role, the role of adviser and then as Plan Administrator may require some professional guidance. It might include guidance that is aimed at IPs to reinforce the consideration that ought to be given to creditors’ interest in the zone of insolvency, when acting in such capacities.[42] Part of this consideration would be to advise companies to ensure relevant information is provided in a timely manner to creditors.

The Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006) (the Practice Statement) is relevant in this regard.[43] According to the Practice Statement the applicant (company) should, prior to the convening hearing, take all steps reasonably open to it to notify a person affected by the RP of various matters relating to the application. It places a responsibility on the applicant to ensure that the application is given in a concise form[44] and in sufficient time to enable the affected parties to consider what is proposed, to take appropriate advice and, if so advised, to attend the convening hearing.[45]

The formalisation of the IP’s role and responsibilities in the period leading up to the convening hearing might contribute to alleviating the burden on dissenting creditors wishing to challenge the sanction of the RP. In advising companies prior to the convening hearing, IPs could be required to ensure that more detailed and relevant information is given within a reasonable timeframe with the specific intent of recognising the company’s duty to consider the interest of creditors. Perhaps the guidance put forward by the Practice Statement to provide concise information is contributing to the information asymmetry. Whilst it is sensible to provide concise information instead of providing too much information, a balance ought to be struck in order to place creditors in a better-informed position. It might also encourage more trust in the process and even minimise instances of challenge.

A standardised form or template as suggested in Stage One could reduce the costs and time associated with RPs significantly. An RP precedent for SMEs could look to SME CVA precedents rather than the documentation for a typical RP which is likely to be overly complex for the purposes of a SME.

Suggestions during Stage One for lowering the consent threshold seem mostly related to the UK maintaining a competitive place in the global restructuring scene. Results from the survey indicate that the most frequent response for respondents was that they do not believe that it is necessary to amend the threshold and seem to prefer a threshold which is consistent with that of the Scheme (see the discussion of overseas jurisdictions at Part 5 below).

To allow multiple debtor entities to be party to the same RP would, for example, simplify the procedure to introduce a lead company concept so that jurisdiction extends to affiliated companies. This would avoid the need to rely upon legal fictions in ensuring the court will hear the case (such as the procedure in the Scheme case Re AI Scheme Ltd[46] which has been adopted in subsequent cases).

4.2.6 How did external factors influence the delivery and functioning of interventions?

Headlines from the Interim Report

Apart from the effect of the Covid-19 pandemic and the resultant Government initiatives to support business, no external factors influencing RPs were identified during Stage One.

New Data

Stage Two of the evaluation delivered no new data, therefore we refer to the findings in Stage One as contained in the Interim Report.

Interpretation

There is no suggestion that external factors, aside from those identified during Stage One, have influenced the functioning of the RP.

4.2.7 What impact has the measure had on employees?

Headlines from the Interim Report

Stage One data suggested that when the RP is used it has been effective to save companies and, in the process, employment has been safeguarded.

New Data

The answers to Question 22 which asked how effective the RP is in contributing to the avoidance of job losses, indicate that a large percentage (41%) of respondents believe the RP is effective. Only 13% thought that the RP is not effective at safeguarding employment, whilst 19% were unsure of the measure’s effectiveness in this regard and 28% of the respondents indicated a lack of knowledge.

Interpretation

The survey data confirms the findings of the Stage One data that successful RPs can safeguard employment. See also the Houst Ltd Case Study in Annex E which provides an example of 300 jobs being protected by use of the measure.

4.3 Company Moratorium

Key findings

• The policy objective of providing companies with a period of protection so they can seek advice, negotiate with creditors and agree plans for their rescue as going concerns appears not to be fully met

• The policy objective of enabling companies using the Moratorium to benefit from greater opportunities for company survival has been partly satisfied but many IPs appear undecided as to whether it has been satisfied

• The policy objective of providing companies using the Moratorium enough time during a ‘breathing space’ to consider the best option for the company has been satisfied when it has been used but there is a general view amongst IPs that the duration is too short

• The policy objective of ensuring that all struggling companies that meet the eligibility criteria should be able to use the Moratorium does not appear to have been met

• The fact that the Moratorium does not provide a payment holiday in relation to financial creditors is seen by some as a major reason why it may be of limited use in practice

• In cases where the Moratorium has been used but where the company has not ultimately been saved the objective may still be seen as successful in providing the opportunity to consider advice on a possible rescue

• The costs of a Moratorium appear to be reasonable and may reduce with wider experience of the measure and/or if the demands of the measure are made simpler

• There are a number of issues which prevent the measure being seen as suitable for SMEs

• The eligibility criteria could be amended to encourage larger companies to use the measure

• The alteration of pre-Moratorium creditor priority in a subsequent formal insolvency creates several problems and is a major reason why some IPs are not using the measure

• As part of the priority issue, uncertainty around the meaning of ‘financial contracts’ in the priority of creditor claims is a further reason for some IPs to avoid using the measure

• The priority provided to funders such as banks, in a subsequent insolvency, who continue to support a company during the Moratorium, is consistent with the policy of encouraging rescue

• Reputational risk to IPs who act as Monitors, should the Moratorium not lead to a successful rescue, is seen as a disincentive by some IPs to use the measure

• There is an argument in favour of extending the category of those qualified to act as Monitors beyond IPs

• Although the issue of further guidance may be helpful, Monitors with experience of Moratoriums have not found the process burdensome

4.3.1 To what extent have the policy objectives been achieved?

Headlines from the Interim Report

The policy decision to base the terms of the stay on actions under the Moratorium on the familiar provisions of the Administration moratorium has allowed IPs to feel comfortable that the stay on actions is effective and readily understood.

Perhaps because the Moratorium replaced the repealed CVA-specific Sch A1 to the Insolvency Act 1986 moratorium, which was limited explicitly to small companies, there may be some residual feeling amongst practitioners that the new Moratorium is only intended to be used by SMEs. The limitation on eligibility to enter a Moratorium found in Sch ZA1, para 13 excludes (generally) a company which is a party to a capital market arrangement where the company has incurred a debt of at least £10m. This provision excludes many large companies, mid-market companies and larger SMEs from using the Moratorium.

New Data

Survey responses to Question 4 indicate that 53% of respondents felt that the Moratorium was either not at all effective or somewhat ineffective in providing companies a period of protection to seek advice, negotiate with creditors and agree plans for rescue. 24% thought that it is somewhat effective or very effective.

In answer to Question 5, although 25% of respondents felt the Moratorium makes survival of distressed companies either somewhat more likely or much more likely, a large majority (57%) believed it makes it neither more nor less likely.

Question 6 of the survey asked whether the length of time of the ‘breathing space’ under the Moratorium was sufficient for a company to consider the best options for its survival. The majority of respondents indicated that the length of time of the breathing space is either far too short (21%) or a little too short (34%). Only 23% of the respondents felt it is about right with 17% indicating that they ‘Don’t know’. One of the free text comments at the end of the survey suggested that an IP might prefer the longer period of an administration to address issues which had arisen.

Question 7 asked whether all companies in distress that meet the eligibility criteria are able to use the Moratorium. The most popular answer here (50% of respondents) was that some are able to use it. This may be contrasted with 14% who thought most eligible companies are able to use it with only 3% believing all eligible companies are able to use it and 3% indicating that no eligible companies can make use of it. A large percentage of 29% of the respondents indicated a lack of knowledge on the subject.

Further to the results of Stage One, Question 8 asked a specific question about a possible change to the eligibility criteria by asking whether, for example, the Moratorium should be available to a company which has a debt of £10 million or more under a capital market arrangement. The most popular answer was ‘Don’t know’ with 37% of respondents choosing this option. 36% of respondents thought that the exclusion should be removed with 26% indicating that they believed it should remain in place.

Interpretation

The answers to Question 4 suggest that a reasonable majority of IPs do not believe that the Moratorium is effective in providing a period of protection which may be used to consider a rescue. Although there have been cases where the Moratorium has been used successfully, interview data suggests a general view that it is only of use in certain specific circumstances, e.g., where a CVA or other rescue plan is already in preparation.

Question 5 responses support this generally ambiguous view, with a large proportion of respondents thinking that the Moratorium makes the survival of distressed companies neither more nor less likely. If one considers some of the survey free text answers and some of the comments made in interviews both in Stage One and Stage Two, the absence of a payment holiday for debts owed to financial creditors may be seen as a major weakness in many cases. There is a general perception that the Moratorium is more likely to be used by SME companies than large companies, and many companies in the SME sector have a single main financial creditor (or a small number of such creditors), often their bank. As the Moratorium will not usually prevent the bank from demanding payment of debts due during the Moratorium, it is not seen as an effective rescue tool in such cases. However, it is also clear from interview data, that IPs who have used the Moratorium have used it successfully and there is a minority of IP respondents to the survey who see the Moratorium as a positive tool for company rescue.

Although the answers to Question 6 suggest that the length of time of the Moratorium needs to be longer, after also considering interview data, it is likely that the respondents were reacting to the initial period of 20 business days. It seems from interviewing those who have used the Moratorium in practice, that it is easily extended to suit the individual circumstances of a particular case, where needed. The Case Study considered in Annex E is an example of a case where the 20-business day Moratorium could have been automatically extended under the provisions of s A14 of the Insolvency Act 1986 to allow for a vote on a CVA proposal. It would appear that the current length of time, which results in a reasonably short Moratorium with the built-in flexibility of being easily extended, is workable. The comment that some IPs may favour administration over using the Moratorium suggests that IPs may need more guidance on how the Moratorium might be used productively. It is intended to be a short-term debtor-in-possession rescue procedure not a long-term office holder driven insolvency procedure. Overall, there appears to be no clear consensus about the length of the Moratorium. It is possible that more detailed guidance on how the initial period may be extended would help develop a consensus in future.

The answers to Question 7 suggest a reasonable proportion of the respondents did not have sufficient knowledge to judge whether eligible companies were able to use the Moratorium (29% answering ‘Don’t know’). This may indicate a certain lack of understanding and knowledge of the eligibility criteria. Virtually all the other answers suggested either some (50%) or most (14%) eligible companies would be able to use the Moratorium which suggests that most IPs see the Moratorium as available to eligible companies. Only 3% of respondents believed that ‘all’ companies in financial distress that meet the eligibility criteria are able to use the Moratorium. The fact that there is so much doubt as to whether eligible companies are able to use the Moratorium suggests that there are factors in specific circumstances where the terms of the Moratorium do not help the company. The fact that the Moratorium’s payment holiday does not apply to debts owed under ‘financial contracts’ and therefore does not prevent a bank from requiring payment of its debt (including accelerated debt) is one of the issues mentioned by interviewees as an example of the Moratorium not being of use to some distressed companies.

The findings from Stage One highlighted the concern that a company which owes a capital market debt of at least £10m is not eligible for a Moratorium. Although the answers to Question 8 of the survey are inconclusive with a fairly even spread of responses, the interview responses in Stage Two have continued to highlight this as a matter which might be usefully amended to open up the Moratorium for use by companies in the mid-market (as well as large companies).

Based on the evidence, to what extent have the policy objectives been met?

• To provide companies a period of protection so they can seek advice, negotiate with creditors and agree plans for their rescue as going concerns.

This policy objective has not been fully met.

• To enable companies using the Moratorium to benefit from greater opportunities for company survival.

This policy objective has been partly met but the evidence is ambiguous.

• To provide companies using the Moratorium enough time during a ‘breathing space’ to consider the best option for the company.

This policy objective has been met in cases where the measure has been used but there is a general view of IPs that the period is too short.

• To ensure that all struggling companies that meet the eligibility criteria should be able to use the Moratorium.

This policy objective has not been met. Only a very small minority of IPs believe that all struggling, eligible companies are able to use the measure.

4.3.2 Did the benefits of the measures outweigh the costs?

Headlines from the Interim Report

Although the costs of any insolvency or restructuring procedure are a perennial concern for companies and their stakeholders, the suggested fees likely to be incurred in a typical Moratorium do not seem to be out of kilter with fees for other procedures. The likely cost of monitoring a Moratorium is linked to a daily cost. This will clearly increase if an initial 20-business day Moratorium is extended. It is possible that the costs will decrease as IPs become more experienced in their new role as Monitor.

New Data

Question 13 asked a reasonably complex question around the likely overall cost savings, in percentage terms, where a Moratorium was used as a precursor to an RP or CVA. The most popular answer was ‘Don’t know’ with 40% of the respondents choosing this response. The next most popular answer (24%) was that it would cost more, with 21% saying there would be a saving, and 15% answering that there would be a zero saving. When uncertainty is accounted for the result is ambiguous.

Interview data suggested that the uncertainty around certain aspects of how the Moratorium operated necessitated legal advice which increased costs.

Interpretation

Question 13 may have been worded in a way which was not readily understood by all the respondents. A high proportion answered ‘Don’t know’. It is understandable that in a corporate rescue scenario the costs of entering two sequential procedures might be seen as likely to cost more than only entering one and so the 24% who responded that it would cost more have provided a logical answer. Ultimately, due to the spread of responses with mostly small numbers in favour of even the more popular answers the data here is inconclusive. The responses to Question 13 have not added to the data considered in the Interim Report, but will inform the PIR.

It remains likely that the costs of a Moratorium will in time decrease as the profession gains more experience of the role of Monitor. It is likely to decrease costs if the demands on a Monitor are made simpler.

4.3.3 Were there any unintended consequences?

Headlines from the Interim Report

The recognised professional bodies are showing an interest in ensuring their members consider using the Moratorium in appropriate cases.

Although there was no evidence of the Moratorium being used strategically by unsecured creditors to gain a priority advantage in a subsequent insolvency procedure, there was nothing obviously preventing its use in this way.

New Data

Reputational risk to an IP as a deterrent to the use of the Moratorium was seen as a potential issue (see para 4.3.4.2 of the Interim Report). Question 11 of the survey in Stage Two therefore asked whether IPs were deterred from using the Moratorium due to potential reputational risk in the event the company is not rescued. A sizeable majority of respondents believe the potential reputational risk involved with acting as a Monitor is a deterrent to IPs taking appointments as Monitors. Only 5% of respondents answered ‘Don’t know’, with 10% stating it is not a deterrent at all. 26% considered it a slight deterrent, 22% somewhat of a deterrent and 36% a significant deterrent.

Stage Two interview data supported the survey findings with some IPs stating that reputational risk combined with the change in priority for their fees in a subsequent insolvency does give rise to the unintended consequence of IPs recommending administration proceedings instead of the Moratorium. Some of the free text comments in the survey also point to a concern over onerous burdens placed upon a Monitor as well as potential criminal penalties for actions taken whilst acting as a Monitor. The risks facing an IP acting as a Monitor appear more significant than, for example, when acting as an administrator.

Interpretation

It is clearly not part of the policy objective for IPs to be deterred from using the Moratorium for reasons of reputational risk. The reputational risk itself appears to be in relation to the prospective rescue of the company not succeeding. The Moratorium is a debtor-in-possession procedure and so any failure to rescue the company is not the responsibility of the Monitor. There does not appear to be the same reputational concern when an IP takes an appointment as an administrator (whether a pre-pack or traditional appointment). An administrator, as office holder, controls how an administration operates, and, of course, an administration has three possible objectives. If a rescue is not feasible, the administration may still be seen as a success if the business can be sold on.

There remains some uncertainty as to how the courts will judge the actions of a Monitor and this uncertainty may be impacting upon the willingness of some IPs to use the measure. If, and when, case law develops on the potential liabilities of a Monitor, this may ease this concern. It may be that guidance to IPs, whether from the Government or professional bodies, could be updated in a way which realistically explains the professional risks of acting as a Monitor but which also encourages use of the Moratorium as a positive short-term rescue procedure.

4.3.4 What worked well and less well?

4.3.4.1 What worked or is working well?

Headlines from the Interim Report

The Moratorium has been seen to work effectively in the context of a company preparing a CVA which needs a short stay on actions to enable it to seek agreement of its proposals by creditors. This use is entirely consistent with and supportive of its policy objective.

There were cases where a Moratorium was brought to an end by the Monitor due to the lack of co-operation from a company’s directors, or where a rescue attempt failed. The policy behind the measure is to provide companies with the opportunity to consider a rescue plan. Where the rescue plan cannot be put into place, it is entirely consistent with the policy behind the measure that the Moratorium is brought to an end by the Monitor. The Moratorium is therefore seen as both providing an opportunity for the company to be rescued but also as providing protection for creditors where the rescue proves not to be possible.

New Data

Stage Two of the evaluation delivered no new data but there were further examples from interviews in Stage Two which confirmed that the Moratorium, when used, was being used successfully in the manner considered in the Interim Report.

Interpretation

We refer to the findings in Stage One as contained in the Interim Report as to what is working well with the Moratorium.

4.3.4.2 What worked or is working less well?

Headlines from the Interim Report

A number of concerns were identified in the Interim Report. Due to the restrictions on eligibility criteria, the Moratorium was not often available to mid-market or large companies as it excludes a company which owes a capital market debt of at least £10m. The alteration of the priority of debts in a subsequent insolvency procedure causes uncertainty and may lead to an IP not receiving their fee in any subsequent insolvency procedure. The policy of excluding financial debts from the Moratorium payment holiday is seen by some as preventing effective use of the measure where protection from lender enforcement is needed. There is uncertainty as to what debts fall within the definition of ‘financial contracts’ for the purposes of the payment holiday and alteration of priority. This uncertainty does not encourage use of the measure.

New Data

The possibility of opening up eligibility to companies which owe a capital debt of at least £10m is considered above at para 4.3.1.

Question 9 of the survey asked how likely it was that the altered priority rules in a subsequent insolvency procedure deterred use of a Moratorium in the first place. A majority of respondents indicated that it was either very likely (33%) or somewhat likely (32%) that the altered priority deters use of the Moratorium. This strong view is supported by a number of free text comments at the end of the survey and remained an issue in interviews conducted in Stage Two.

Interpretation

Stage One data indicated that the alteration of pre-Moratorium creditor priority in a subsequent formal insolvency creates several problems and is a major reason why some IPs are not using the measure. The survey and interview data gathered in Stage Two indicate that IPs are deterred by the change in priority rules and are advising against use of the Moratorium, with some suggesting Administration, a more expensive procedure, as an alternative.

The answers to Question 7 of the survey considered above at para 4.3.1 suggest that the Moratorium cannot be used by all eligible companies. Interview data from Stages One and Two as well as free text comments in the survey suggest that a payment holiday which does not include normal bank debt significantly reduces the usefulness of the procedure.

4.3.5 Could the measures be improved upon?

Headlines from the Interim Report

A number of possible improvements were identified during Stage One of the evaluation. It was suggested that the eligibility criteria could be amended to allow larger companies to use the procedure. Amendments to the creditor priority in a subsequent insolvency procedure were also suggested along with a suggestion to consider clarifying the definition of contracts involving ‘financial services’. There was some support for extending the category of those qualified to act as Monitors beyond IPs.

New Data

New data on eligibility for a Moratorium and altered priority of debts have been considered above (at paras 4.3.1 and 4.3.4.2 respectively).

Question 10 of the survey asked a specific question about whether other professionals, as well as IPs, should be allowed to act as Monitors. A large majority of IPs (81%) indicated that they thought that only IPs should be allowed to act as Monitors. A reasonable percentage of respondents (16%) still thought that it should be open to other professions.

Some IPs interviewed in Stage Two also indicated that there might be other professions that would also be suitable to the role.

Interpretation

The divergence of opinion seen in Stage One regarding the Monitor’s qualifications seems to have prevailed in Stage Two. It should be noted that due to the self-interest nature of the survey question it is perhaps not surprising that a large majority of IPs were in favour of retaining their monopoly on Monitor appointments.

As was seen above at para 4.3.3, reputational risk to IPs is a serious issue which deters many from considering a Moratorium. If other professionals were permitted to act as Monitors, this might encourage a wider use of the provision as they might be less concerned about reputational risk. This might be particularly true for turnaround professionals who may see the Moratorium more as a rescue procedure than an insolvency procedure and therefore approach it with less reputational concern.

4.3.6 How did external factors influence the delivery and functioning of interventions?

Headlines from the Interim Report

Stage One data showed that due to the widespread protections and support provided by the Government to assist businesses during the pandemic, the real utility of the Moratorium remained largely an untapped resource.

New Data

Stage Two of the evaluation delivered no new data.

Interpretation

There remains no suggestion that external factors, aside from the various Government interventions, have influenced the operation of the Moratorium.

4.3.7 What impact has the measure had on employees?

Headlines from the Interim Report

The data suggests that when the Moratorium is used it has been effective to save companies and, in the process, employment has been safeguarded. The emphasis on rescuing companies as a going concern is likely to have a positive impact on jobs being saved. The Moratorium is therefore clearly capable of having a genuine impact on saving companies and jobs.

New Data

Question 12 asked respondents how effective the Moratorium is in contributing to the avoidance of job losses. The most popular response was ‘Don’t know’ at 26%. The other possible responses show a widespread, with the next most popular answer being ‘Neither effective nor ineffective’ (24%).

Interpretation

A large number of respondents indicated a lack of knowledge and uncertainty regarding the possible avoidance of job losses through use of the Moratorium. This is perhaps not surprising as the number of cases remains relatively modest compared to expectations. It is clearly the case from interviews in Stage Two, that those IPs who have used the Moratorium successfully have seen the avoidance of job losses. An example of this may be seen in the Moratorium Case Study in Annex E, where the jobs of 4 employees were safeguarded in the SME company and there was evidence of more jobs within the group of companies being saved by the use of the measure.

4.4 Suspension of Termination (ipso facto) clauses

Key findings

• The policy objective of preventing companies in insolvency procedures from being held ‘hostage’ by suppliers by withdrawing supply completely has been met

• The data relating to whether the policy objective of preventing companies in insolvency procedures from being held ‘hostage’ by suppliers by asking for additional ‘ransom’ payments is ambiguous

• The policy objective of providing a valuable tool to support company rescue and thereby provide better returns to creditors has been met

• The data relating to whether the policy objective of mitigating the transference of risk onto suppliers, via a statutory ‘hardship provision’ to protect suppliers that cannot (rather than will not) supply, remains ambiguous

• Although previously IPs would negotiate with suppliers when the need arose, the measure has made communication with suppliers a Day One matter

• There may be a need for guidance to IPs when communicating to non-sophisticated suppliers in order to point out the suppliers’ rights to claim the hardship defence

• The certainty that the measure brings to relations with suppliers is likely to lead to savings in time and in fees

• Although the measure may not be decisive in many cases it is seen as a very helpful provision in helping to ensure a business can be turned around and jobs saved

• The priority of payment of suppliers under the measure appears likely to vary depending upon which insolvency procedure the company has entered

• There remains some uncertainty around how aware suppliers are of the measure

• Trade credit insurance will not cover the continuing supply under the measure as such insurance ceases when a company enters a formal insolvency procedure. Therefore, it is unlikely that suppliers would utilise such a product

4.4.1 To what extent have the policy objectives been achieved?

Headlines from the Interim Report

Stage One data indicated that the measure is seen as achieving its policy objective of preventing companies subject to a formal insolvency procedure from being held hostage by suppliers.

New Data

A number of questions in the survey were designed to collect data on how s 233B is working in practice.

Question 23 asked how well the provision was working in preventing insolvency procedures from being held hostage by suppliers withdrawing supply. The most popular answer was ‘Fairly well’ with 42% of respondents choosing this option. A further 6% stated it is working ‘Very well’. Although 29% of the respondents did not know how it was working, only 24% in total felt it was not working (either not very well – 19% or not well at all – 5%).

Question 24 moved on from Question 23 by asking how well s 233B worked in preventing insolvent companies from being held ‘hostage’ by preventing suppliers asking for additional ‘ransom’ payments.[47] The answers to this question showed a reasonably even split between ‘Don’t know’ and working well or not well.

Question 25 enquired as to how valuable a tool s 233B is. All respondents with a view (that is, discounting those who answered ‘Don’t know’) thought the provision was of some value. No one thought it was of no value.

Question 26 asked about how effective the ‘hardship’ defence is for suppliers. The most popular response was ‘Don’t know’ (52%). The other relatively popular answers were that it was ‘Somewhat effective’ (19%) or ‘Neither effective nor ineffective’ (18%).

One Stage Two IP interviewee, with personal experience of using the measure, explained that they quoted the measure to a supplier to ensure continued supply as part of administration proceedings. The IP indicated that they did not mention the hardship provision to the supplier and did not believe that the supplier had any knowledge of the section or the hardship provision.

Interpretation

It is interesting that s 233B is generally seen as working well at ensuring continued supply (Question 23) but even though such supplies may continue, it seems that there is more ambiguity as to whether the provision prevents ‘ransom’ payments. (Question 24). This is supported by some of the free text comments in the survey where it seems s 233B is not seen as effectively preventing ‘ransom’ payments.

In assessing the value of the provision in Question 25, all respondents with a view felt it was of some value. The policy objective of providing a valuable tool to support company rescue and thereby provide better returns to creditors appears therefore to be satisfied.

The answers to Question 26 suggest that it remains too early to assess how the hardship defence will operate in practice.

The interview evidence suggests that as practice develops it may become important to require IPs to ensure, when using the measure, that suppliers are made aware of the hardship defence. Although unlikely to be a concern where a supplier is relatively sophisticated, IPs might find it beneficial to receive guidance from their professional bodies or the JIC as to how to use the s 233B provision when dealing with less sophisticated suppliers. A notice pointing out the ability to claim hardship may be seen as appropriate.

Based on the evidence, to what extent have the policy objectives been met?

• To prevent companies in insolvency procedures from being held ‘hostage’ by suppliers either by withdrawing supply completely or that ask for additional ‘ransom’ payments.

The first part of this objective has been met but the evidence on the second part of the objective remains ambiguous.

• To provide a valuable tool to support company rescue and thereby provide better returns to creditors.

This policy objective has been met.

• To mitigate the transference of risk onto suppliers, via a statutory ‘hardship provision’ to protect suppliers that cannot (rather than will not) supply.

The evidence on this policy objective remains ambiguous.

4.4.2 Did the benefits of the measures outweigh the costs?

Headlines from the Interim Report

Stage One data provided no indication as to any costs associated with the measure or how many businesses were being saved due to the measure at that time.

New Data

Stage Two of the evaluation delivered no new data.

Interpretation

We refer to the findings in Stage One as contained in the Interim Report.

4.4.3 Were there any unintended consequences?

Headlines from the Interim Report

There was little practical experience of s 233B in practice. There was a genuine concern that suppliers who continue to supply insolvent companies are not guaranteed payment for continued supply especially where there was no office holder in place.

New Data

The issue of guaranteed payment is considered below at para 4.4.5.

Interpretation

See below at para 4.4.5.

4.4.4 What worked well and less well?

Headlines from the Interim Report

Although there was little evidence as to how the measure is being used in practice there were some concerns around enforcement where there is non-compliance by a supplier.

New Data

• Enforcement of the legislation

In answer to Question 28 which asked about whether there was suitable enforcement of the measure when a supplier did not comply, the most popular answer was ‘Don’t know’ (45%). Respondents with a view thought that there is either no effective enforcement (28%) or that enforcement is possible but not straightforward (23%).

• Supplier awareness

Question 29 asked how aware suppliers are of s 233B. The survey data indicate that the largest percentage of respondents thought that suppliers are ‘Not aware’ (39%) with ‘Don’t know’ being the next popular answer at 29%. Only 12% thought suppliers to be ‘Somewhat aware’ with 21% believing them to be ‘Slightly aware’.

Stage Two interview data suggest that awareness of the measure depends on the sophistication of the supplier. An IP with experience of the measure suggested that some suppliers (due to their size or business activities) are more knowledgeable of certain legal developments, such as s 233B, whilst others maintain a lower level of cognisance.

Interpretation

Although the measure appears currently to be not that well-known outside of sophisticated suppliers, that is likely to change as more companies enter into rescue proceedings.[48] There remains a real issue as to how difficult in practice enforcement of s 233B will be. IPs with a view are clearly concerned that enforcement will be difficult at best. It remains likely that IPs will only take formal action if a supplier is critical to an appointment and that the cost of enforcement are outweighed by the cost of, for example, paying a ‘ransom’ payment to the supplier.

4.4.5 Could the measures be improved upon?

Headlines from the Interim Report

Although there was a suggestion that continued supply could be guaranteed by an office holder there were likely to be problems in identifying a suitable guarantor in cases where no office holder was in post.[49]

New Data

Question 27 asked whether suppliers should have their continued supply guaranteed by an office holder (if any is in post) or directors (where no office holder is in post) or if some other form of guarantee should be introduced. A large majority of 65% of respondents thought that no guarantee should have to be provided to suppliers and that the current rules, which provide for a high priority for the payment of supplies but no personal guarantee, should be upheld. 18% of respondents indicated a lack of knowledge in relation to the question.

Interpretation

There was virtually no support for a personal guarantee in favour of suppliers. This is perhaps not entirely surprising as IPs would be the ones who would probably be asked to provide such guarantees (at least where they are office holders).

As pointed out in the Interim Report, it would be very difficult to ensure an effective personal guarantee in cases where there is no office holder.

4.4.6 How did external factors influence the delivery and functioning of interventions?

Headlines from the Interim Report

It was usual practice for trade credit insurance cover to cease if a customer enters a formal insolvency procedure. In such circumstances, a supplier’s insurance cover will therefore cease even if the insolvent customer requires a continued supply. It seems likely that the provision of trade credit insurance falls within the Insolvency Act 1986, Sch 4ZZA, para 3 general exclusion for suppliers who carry on the regulated activity of effecting contracts of insurance.

Although it may become possible to insure continued supply under s 233B, there is no suggestion that the market is currently considering this type of policy. Due to the priority of payment such continued supply is likely to have in an insolvency there may be little need for such a new product.

New Data

Stage Two of the evaluation delivered no new data.

Interpretation

As such we refer to the findings in Stage One as contained in the Interim Report.

4.4.7 What impact has the measure had on employees?

Headlines from the Interim Report

During Stage One of the evaluation, it was too early to assess whether the measure has been used to save jobs directly, but the general view was that it is a useful tool for office holders to use when continued supply is crucial to a rescue plan.

New Data

Survey data to Question 30 indicate that 24% of respondents believe that s 233B can be effective in contributing to the avoidance of job losses (2% ‘very effective’ and 22% ‘somewhat effective’). The most popular response was ‘Don’t know’ at 31%, followed by 26% of respondents who viewed it as ‘Neither effective nor ineffective’ in contributing to the avoidance of job losses. 10% thought the measure was not effective at all with a further 9% seeing it as somewhat ineffective.

Interpretation

The limited knowledge of the practical application of the measure remains evident. Despite some respondents identifying issues around knowledge of the measures and enforceability, many believe that it will contribute to more positive restructuring outcomes. Positive restructuring outcomes have the added benefit of probable avoidance of job losses but the evidence is currently ambiguous.

5. International perspectives

Key findings

• There is support for retaining the 75% voting threshold in RPs

• Providing the measures with extra territorial effect will reduce cost and create more certainty

Headlines from the Interim Report

Some interviewees made mention of similar measures introduced in other jurisdictions such as the Netherlands, Germany and Singapore. Comparisons were made with certain aspects of the measures introduced in these jurisdictions, such as the consent threshold and the number of hearings for a Scheme or RP as well as the extra territorial effect of some foreign measures. The opinion was expressed that if the UK would like to maintain its competitiveness in the global restructuring market, certain amendments should be considered such as limiting the role of the court in restructuring procedures, reducing the voting threshold for approval of RPs, and providing for restructuring measures with extra territorial effect.

New Data

No interviewees mentioned any international comparative aspects during Stage Two interviews. However, the survey did request, in Question 32, an opinion on whether the consent threshold for RPs should be amended in line with those currently required in jurisdictions with a similar measure. There were a minority of respondents who thought that an RP should pass with a simple majority vote (16%), and there was some support for a reduction to two-thirds in value (33%), however the most popular response was that the consent threshold for RPs at three-quarters in value should be retained (39%). Only 12% indicated a lack of knowledge.

Interpretation

As discussed in 4.2.5, limiting the role of the court in the RP might be a way to reduce the burden on business. Furthermore, there might be appropriate circumstances when two full hearings would be unnecessary.

The results from the survey, although indicative of some divergent opinions regarding the amendment of the consent threshold, do seem to indicate that respondents are of the opinion that the RP’s threshold should remain consistent with that of the Part 26 Scheme, which is consistent with the Government’s intentions in mirroring Part 26A on Part 26.[50] The commonality shared by the RP and Part 26 was lauded and described as helpful during Stage One of the evaluation. However, the suggestion to provide the measures with extra territorial effect would reduce costs as well as create certainty. Moreover, it would appear to be more in line with what is regarded as best practice.[51]

6. Conclusion

Stage One data suggested that the CIGA measures have been broadly welcomed by all stakeholders. Each of the measures was broadly seen as satisfying its policy objectives. Stage Two data suggests that although the policy objectives for the RP are regarded as having been met, not all of the policy objectives for the Moratorium have been met, and the evidence in respect of s 233B remains to some extent ambiguous.

IPs and lawyers appear to have readily embraced the RP as the statutory provisions which govern the RP are based largely upon the existing jurisprudence and procedures which are well known in the context of Part 26 Schemes. Although there was support for the decision to use Part 26 Schemes as a basic blueprint for RPs in Stage One, practice is developing and it is clear that bespoke RPs are being drafted for use by the type of companies which traditionally did not often use Schemes (SMEs). Such RPs are seen as providing useful guidance for drafters of future RPs.

Although the Moratorium has been used successfully, it has not been as effective in meeting its policy objectives as the RP. The terms of the stay on creditor actions are based upon the stay found in administration and so IPs and creditors are familiar with its effects. The exception in its payment holiday for financial debts is seen by some as a factor in limiting its utility. It is not available to many mid-market and large companies due to eligibility exclusions and there is some resistance to its use in the SME market (and generally) for various technical and reputational reasons. There is concern that the alteration of creditor priorities when a company enters a subsequent insolvency procedure may lead to a lack of certainty. This has caused unease and there is evidence that the measure is not being used in some cases because of it.

It is probably too early to assess the effect of the suspension of Termination (ipso facto) clauses but so far it is generally seen as a useful provision which, when needed, will make a real difference when trying to rescue companies and save jobs.

Although the UK has emerged from the pandemic, companies are facing new risks including high energy prices and inflation. Data on the CIGA measures are likely to become clearer as the measures become more widely used.

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[1] The Interim Report, published on 21 June 2022, can be accessed here: https://www.gov.uk/government/publications/corporate-insolvency-and-governance-act-2020-interim-report-march-2022.

[2] Re Amicus Finance plc [2021] EWHC 3036 (Ch) where secured creditors were crammed down and Re Houst Ltd [2022] EWHC 1941 where HMRC, as preferential creditor, was crammed down.

[3] This may be seen in the sanction hearing in Re Houst Ltd [2022] EWHC 1941.

[4] A person acts as an insolvency practitioner in relation to a company under s 388 of the Insolvency Act 1986 by acting as a liquidator, provisional liquidator, administrator, administrative receiver, monitor (of a moratorium), nominee or supervisor (of a voluntary arrangement).

[5] Process evaluations tend to examine activities involved in an intervention’s implementation and the pathways by which the policy was delivered. HM Treasury. (2020) The Magenta Book: Central Government guidance on evaluation. London. Crown Copyright. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879438/HMT_Magenta_Book.pdf.

[6] The Better Regulation principles are provided by the Better Regulation Unit, the team in each department responsible for promoting the principles of good regulation and advising departmental policy makers. The Better Regulation Framework (publishing.service.gov.uk).

[7] The Interim Report, published on 21 June 2022, can be accessed here: https://www.gov.uk/government/publications/corporate-insolvency-and-governance-act-2020-interim-report-march-2022.

[8] More information available at: COVID-19 financial support for businesses - GOV.UK (www.gov.uk).

[9] The Coronavirus Job Retention Scheme or Furlough Scheme provided employers with a grant to be used to cover wages of employees on the payroll that were on temporary leave due to the COVID-19 pandemic. More information available at: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme.

[10] Major changes to insolvency law come into force. GOV.UK. 29 June 2020. Full News Story available at: https://www.gov.uk/government/news/major-changes-to-insolvency-law-come-into-force.

[11] Law reform initiatives were often informed by the World Bank’s Ease of Doing Business Report before the World Bank discontinued the publication thereof in 2020. The Ease of Doing Business indicators and previous reports can be accessed here: https://www.worldbank.org/en/programs/business-enabling-environment.

[12] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency). Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32019L1023.

[13] UNCITRAL Legislative Guide on Insolvency Law. Available at: https://uncitral.un.org/en/texts/insolvency/legislativeguides/insolvency_law.

[14] A Review of the Corporate Insolvency Framework: Consultation outcome Available at: A Review of the Corporate Insolvency Framework - GOV.UK (www.gov.uk).

[15] Official Statistics. Monthly Insolvency Statistics September 2022. GOV.UK. 14 October 2022. Available at: https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2022/commentary-monthly-insolvency-statistics-september-2022#company-and-individual-insolvencies-in-england-and-wales.

[16] Official Statistics. Monthly Insolvency Statistics September 2022. GOV.UK. 14 October 2022. Available at: https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2022/commentary-monthly-insolvency-statistics-september-2022#company-and-individual-insolvencies-in-england-and-wales.

[17] The Magenta Book: Central Government guidance on evaluation. London. Crown Copyright. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879438/HMT_Magenta_Book.pdf.

[18] Corporate Governance and Insolvency Bill Impact Assessment: (parliament.uk).

[19] The Magenta Book: Central Government guidance on evaluation. London. Crown Copyright. Available at: Magenta_Book_Annex_A._Analytical_methods_for_use_within_an_evaluation.pdf (publishing.service.gov.uk).

[20] Annual Review of Insolvency Practitioner Regulation 2021 - GOV.UK (www.gov.uk).

[21] Find an insolvency practitioner - GOV.UK (www.gov.uk).

[22] Personal_Information_Charter.odt (live.com).

[23] Weimiao Fan and Zheng Yan, ‘Factors affecting response rates of the web survey: A systematic review’ [2010] 26(2) Computers in Human Behavior 132-139.

[24] The Aqua Book. Uncertainty Toolkit for Analysts in Government. Available at: Uncertainty Toolkit for Analysts in Government (analystsuncertaintytoolkit.github.io).

[25] Scottish Government Social Research Group Social Science Methods Series. Available at: Introduction (www.gov.scot).

[26] Energy prices are a key concern: https://www.ons.gov.uk/businessindustryandtrade/changestobusiness/bankruptcyinsolvency/articles/risingbusinessinsolvenciesandhighenergyprices/2022-10-07.

[27] Official Statistics. Monthly Insolvency Statistics September 2022. GOV.UK. 14 October 2022. Available at: https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2022/commentary-monthly-insolvency-statistics-september-2022#company-and-individual-insolvencies-in-england-and-wales.

[28] GSR quota sampling guidance. What to consider when choosing between quota samples and probability-based designs. Available at: Quota-sampling-guidance-4.pdf (civilservice.gov.uk).

[29] The Magenta Book: Central Government guidance on evaluation. London. Crown Copyright. Available at: Magenta_Book_Annex_A._Analytical_methods_for_use_within_an_evaluation.pdf (publishing.service.gov.uk).

[30] A Review of the Corporate Insolvency Framework: Consultation outcome Available at: A Review of the Corporate Insolvency Framework - GOV.UK (www.gov.uk).

[31] [2022] EWHC 1941 (Ch).

[32] [2022] EWHC 2178 (Ch).

[33] Whilst CVAs have been used to compromise the claims of landlords, research found that landlords as a whole have broadly been equitably treated; Company voluntary arrangement research report for the Insolvency Service - GOV.UK (www.gov.uk)

[34] The Green Book. London. Crown Copyright. Available at: The Green Book (2022) - GOV.UK (www.gov.uk). “Imperfect information:… An imbalance in the information available known as information asymmetry confers an unfair advantage on the side that possesses it.”

[35] [2022] EWHC 1941 (Ch).

[36] The Magenta Book. Supplementary Guide: Handling Complexity in Policy Evaluation. London. Crown Copyright. Available at: Magenta_Book_supplementary_guide._Handling_Complexity_in_policy_evaluation.pdf (publishing.service.gov.uk) p 15. “…tipping points refer to the threshold beyond which a system goes through rapid change into a different state. It can be seen in situations in which change has initially been quite slow, but suddenly increases in pace.”

[37] Stefanie Wilkins and Alison Goldthorp. ‘The Restructuring Plan: Is it becoming a workable restructuring option for all companies in financial distress?’ South Square Digest. Available at: SSQ_Digest_September_2022_Final-2.pdf (southsquare.com) at p 11. “So as the case law establishes principles which can be applied by all companies, it will inevitably become more available to companies which would not otherwise have the funds to make a lengthy and potentially complex application to court. The recent applications in Re Amicus Finance and Re Houst demonstrate this, where smaller companies have successfully used the procedure.”

[38] Corporate Insolvency and Governance Act 2020, Explanatory Notes. Available at: https://www.legislation.gov.uk/ukpga/2020/12/pdfs/ukpgaen_20200012_en.pdf p 6 at para 15, 16.

[39] Geoff O’Dea, (2022) Restructuring Plans, Creditor Schemes, and Other Restructuring Tools. England: Oxford University Press p 348 at para 5.09.

[40] Stronghold Insurance Co Ltd [2018] EWHC 2909 (Ch).

[41] Re Telewest Communications plc, Re Telewest Finance (Jersey) Ltd [2004] EWHC 924 (Ch) at [14]. See also Geoff O’Dea, (2022) Restructuring Plans, Creditor Schemes, and Other Restructuring Tools. England: Oxford University Press p 352 at para 5.21.

[42] BTI 2014 LLC v Sequana SA and others [2022] UKSC 25.

[43] Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006 [2020] 6 WLUK 547. Available at: https://www.judiciary.uk/guidance-and-resources/practice-statement-companies-schemes-of-arrangement-under-part-26-and-part-26a-of-the-companies-act-2006/.

[44] Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006 [2020] 6 WLUK 547. Available at: https://www.judiciary.uk/guidance-and-resources/practice-statement-companies-schemes-of-arrangement-under-part-26-and-part-26a-of-the-companies-act-2006/ at para 7.

[45] Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006 [2020] 6 WLUK 547. Available at: https://www.judiciary.uk/guidance-and-resources/practice-statement-companies-schemes-of-arrangement-under-part-26-and-part-26a-of-the-companies-act-2006/ at para 8.

[46] [2015] EWHC 2038 (Ch).

[47] Ransom payments refer to the practice of charging additional payments, or requiring early payment of outstanding debts, as a condition of ongoing supply.

[48] Official Statistics. Monthly Insolvency Statistics September 2022. GOV.UK. 14 October 2022. Available at: https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2022/commentary-monthly-insolvency-statistics-september-2022#company-and-individual-insolvencies-in-england-and-wales.

[49] Section 233B(9) defines ‘office-holder’ for the purposes of the provision as meaning an administrator, administrative receiver, liquidator or provisional liquidator. The definition does not include a Monitor of a Moratorium, a supervisor of a CVA or where a company’s creditors have been summoned to vote on an RP. Section 233B applies to cases of a Moratorium, a CVA or an RP.

[50] Corporate Insolvency and Governance Act 2020, Explanatory Notes. Available at: https://www.legislation.gov.uk/ukpga/2020/12/pdfs/ukpgaen_20200012_en.pdf p 6 at para 15, 16.

[51] The European Bank for Reconstruction and Development (EBRD)’s Core Principles of an effective Insolvency System in Principle 15 – “Given the transnational nature of modern businesses, an effective insolvency system should facilitate the smooth conduct and resolution of cross-border insolvencies”.